Want to Launch a RegCF Platform?

Speakers

Oscar Jofre

CEO and Co-Founder

KoreConX

Oscar Jofre

CEO and Co-Founder

Oscar is currently one of the Top 10 Global Thought Leaders in Equity Crowdfunding, a Top 5 Fintech Influencer, Top 10 Blockchain and a Top 50 InsureTech. He has published an eBook that has been downloaded in over 20 countries, and been distributed by partners worldwide. Oscar is a featured speaker on Fintech, regulated, equity crowdfunding, compliance, shareholder management, investor relations, and transparency in the USA, Australia, UK, Germany, France, Netherlands, Canada, Singapore, Indonesia and China. He speaks to audiences covering alternative finance, RegTech, insurance, banking, legal, and crowdfunding. Oscar also advises the world’s leading research, accounting, law firms and insurance companies on the impact Fintech, RegTech, LegalTech, InsurTech and OrgTech is having in their business.

Mark Roderick

Managing Partner

Lex Nova Law

Mark Roderick

Managing Partner

I spend all my time in the Crowdfunding and Fintech space, representing issuers, platforms, investors, and other industry participants around the United States and all over the world. I speak at conferences across the country and write a blog that serves as a compendium of legal knowledge for the Crowdfunding industry, CrowdfundAttny.com. I'm an evangelist about Crowdfunding. By making capital available to a broader spectrum of entrepreneurs, and by making available to ordinary Americans the kind of investment previously limited to the very wealthy, I think Crowdfunding can reinvigorate American capitalism and begin to address the serious wealth and income inequality in our country. I began my career as a tax lawyer and have served as the Chair of our Corporate Law Group and our Mergers & Acquisitions Group.

Marty Tate

Partner

Carman Lehnhof Israelsen

Marty Tate

Partner

Marty is a nationally recognized securities, finance and fintech attorney and counsels clients throughout the U.S. and internationally on various forms of structured finance, private and public securities offerings, fintech, real estate financings, venture capital and angel financings, fund formation and compliance, business formation and corporate governance. Since 2009, Marty has been active in advising clients in the crowdfunding and peer-to-peer lending space, with a particular focus on the JOBS Act, Regulation D offerings, intrastate offerings and Regulation A. His clients in this space include nationally and internationally recognized platform operators, sponsors, issuers, REITS, funds and service providers. He has been recognized as one of the top crowdfunding attorneys in the United States and continues to provide expertise and play a leading role locally and nationally in this area of securities law.

Oscar Jofre  00:29

Okay, so yeah, well, you know, hopefully, he’ll make it in but let’s get started because, you know the thing about this subject it’s gonna be like everything else. It’s amazing how many calls you start getting now that people are: “oh, so it is happening, okay.” Alright, so let’s begin. Oh, there is Mark, so we’re just gonna allow them in. Here we go. He came in the other way. All right welcome, everybody. Welcome to the KoreConX KoreSummit webinar series 2021. My name is Oscar Jofre and today we are going to have this is really different topic. But it’s all related to once again the JOBS Act and the amendments and the excitement. And just to remind everyone, our discussions here are more of a fireside chitchat having a cup of coffee or afternoon lemonade here. No PowerPoint presentations, you’re going to hear from the experts directly. It has been broadcast live on YouTube. And of course, we do have it on the KoreSummit website as well to get a hold of these experts. So today, some of them you’ve met before, but like always, I think it’s important for them to get to know you. So Marty, please take a moment to introduce yourself.

Marty Tate  01:52

Yeah, hi, I’m Marty Tate. I’m a securities lawyer based out of Salt Lake City and have been active in private and public finance throughout my career. I’m very involved with crowdfunding since the inception of the JOBS Act. That’s where you know, I’ve known Oscar and Mark for a long time now. And we’ve all gotten gray hairs together in this field. And yeah, so my practice is primarily within crowdfunding I do a lot with I represent a number of the portals, I represent a number of issuers, service providers, and everything in between related to reg CF and do a lot of work as well.

Oscar Jofre  02:43

So all right, so the other person with less gray hair than all of us, Mark, it’s good to see you, my friend.

Mark Roderick  02:52

Good to see you. I haven’t seen you in what, two or three hours Oscar? Hey, Marty, how are you? Nice to see you.

Marty Tate  03:00

Good, nice. See you to Mark

Mark Roderick  03:01

Yeah, just repeat everything Marty said. Yeah, I’ve been doing crowdfunding since the beginning, representing a bunch of portals, title three, title four, title two, tons of issuers, all those. All those folks which we’re going to talk about that whole process. And what that area is like today?

Oscar Jofre  03:27

Yes, today, which is exciting because now we’re like two weeks away?

Mark Roderick  03:32

Well, maybe, or maybe not. That’s, you know, that’s the question, right?

Oscar Jofre  03:38

Well, as far as I’m being told it is January the 29th was the chance when the SEC had time to roll it back from what we hear so far. So full steam ahead. Moving forward. Obviously, companies are getting ready. But this is really about the funding portal or those who want to operate it. So let’s start with this part first. So regulation CF, let’s give the context of the regulation, what it allows and where it can be done. So let’s start with you, Mark, on that and then we’ll move into you Marty with that.

Mark Roderick  04:14

Okay, so what is your question?

Oscar Jofre  04:19

I mean, my apologies. Sometimes I think I state things and I don’t realize [uncertain]. I was just saying if we could recap for everyone how regulation CF, regulation crowdfunding,  works just from a high level, you know. Then we’ll dive into where they can because that’s what the discussion is about, right? Where can you do it? 

Mark Roderick  04:49

Okay, so what we call regulation crowdfunding or reg CF or title three crowdfunding is, for all you securities lawyers out there, it is another exemption. So, the big picture is securities laws, every time you sell security a share of stock or promissory note, every time you raise money, you have to do an IPO, just like Facebook and spend millions of dollars and have underwriters and all kinds of things. So that’s the general rule. However, of course, since the beginning of the 1930s, it was recognized that that doesn’t make sense for small companies. So since then, we have all these exemptions, which you can think of as cubbyholes. If you follow this rule, you can do this, if you follow that rule, you can do this. So we have all these exemptions. Regulation D, which many of you have heard about has is its own set of exemptions, not just one, but several. So title three crowdfunding, which was created by the JOBS Act, signed into law in 2012, is yet another exemption under the US securities laws. It is, however, unlike any exemption that has ever existed in the past, because it allows companies issuers to raise money directly with non-accredited investors over the internet, without any pre-sale approval by any state regulator, or the FCC. So this is, and this was unprecedented. And that’s why at the time, and actually still, is controversial because many people believe that, you know, all the bad folks out there people like Mark

Oscar Jofre  06:55

Did it cut him off just when he said that people?

Mark Roderick  06:57

like, like Oscar and Marty and Mark. We’re going to use this opportunity to steal money from widows and orphans. And many people still think that. But anyway, that’s what title three crowdfunding is, it is a relatively new exemption that allows companies to raise money from everybody accredited and non-accredited, online with no prior approval, and subject to many, many rules, which I’m not going to go into right now because I’ve been talking too long. But one of the main rules for purposes of this webinar today is that this can only be done through a new kind of licensed company, which has never existed before: the funding portal. So you cannot if you’re an issuer where you cannot just put up your own website and use title three to raise money, I get a lot of calls from people who would like to do just that, as I’m sure Marty does, too. But that’s one of the key features of title three, you can only do this through a funding portal. So now I’ll stop.

Oscar Jofre  08:19

You never need to stop. I think this is a healthy conversation. And you’re right, we, we all have a passion for it. And today’s discussion is really towards as you said it, this is a great way to a mechanism that we’ve been given. But there is one caveat with it, you must race it on these registered funding portals, and is the reason for this discussion. So let’s start with you, Marty. I mean, the definition of a funding portal, I mean, when when you hear register component portal, I’m immediately thinking broker-dealer. But let’s start with that the mechanics of it the starting point who can operate a funding portal.

Marty Tate  08:58

So like Mark said, it’s this it was this new creation and funding portal is some you know, this is actually or a licensed intermediary. This is something that is kind of like a broker-dealer light. It’s basically an entity that has been established to conduct these specific types of offerings and assist with these specific types of offerings like a funding portal. They’re really only licensed to do regulation CF or title three offerings. So unlike a broker-dealer that could assist with other types of offerings, funding portals can only do reg CF offerings. And in order to do that, they have to be like a broker-dealer. They have to be licensed. They have to be approved by the SEC and approved by FINRA. So that’s, that’s kind of the difference. That’s, that’s who can do it now, I guess. And I guess I don’t want to get too much in the weeds, but it could be, you know, US entities, certain Non-US entities could also go through the process and be licensed if they’re from certain jurisdictions. And I won’t bore you with with the details of that, but that’s the who.

Oscar Jofre  10:36

Okay, so that’s an important factor here that, as Mark alluded to, we’ve opened it up in one way. We even opened it up on the way it can be done through as we call a broker-dealer light, but they’re not really broker-dealers. They’re just everyday individuals who want to launch a platform for the veggie space or the space space, whichever it is. And as long as they qualify under FINRA, or they can apply. You mentioned something there. I don’t know if you know, this one, Mark. But what jurisdictions are allowed to own a funding portal from outside of the United States, again, given that they’re only dealing with US companies, but where can these entities come from? Your mute my friend?

Mark Roderick  11:26

I know, I thought I could press my spacebar to unmute, but that didn’t work. So the answer is it. It’s theoretically can be anywhere. You know, you can even operate a funding portal from [uncertain]. Now, I’m just kidding. You can theoretically operate a funding portal from anywhere outside the United States, as long as the jurisdiction where you’re operating has an information-sharing agreement in place with the securities exchange commission. And there is a list, I wish I remembered the URL. There is a list of jurisdictions that do have such agreements in place. And they’re from the normal suspects, you know, our major trading partners, and so forth. Certainly fewer than half the countries in the world, however, so. Yeah, so you have to be careful. And you also have to be careful about lying. Because I’ve seen funding portals get into trouble. They said they were US-based, and they were US companies. But it turned out the folks making the decision, when they woke up in the morning, they did not look out the window and see the United States, they saw a different country. And the SEC, FINRA found out about it, and they got in a world of trouble. So it is, you know, something. This is funding portals are like, you know, if you’ve been in the world, the unregulated world of regulation D and even regulation Well, yeah, Regulation D private or offering. This is different. You put into funding portals and FINRA, you were dealing in a regulated world. So it is something different.

Oscar Jofre  13:39

You said something there that just kind of okay, so Ay, ay ay entity from a foreign country can own a platform not be in the United States. Right. But in this case, was it because of the country that they were from was within the blacklist, so you have to be in the country? Or even, let’s say, Canada, I’m a Canadian, I want to register our funding portal. I disclose I’m Canadian, can I still reside in Canada? Or do I need to reside in the United States? Well,

Mark Roderick  14:08

Canada is going to be one of those countries that have an information-sharing agreement with the United States. But the point is that what matters is where the person lives, you know, where you wake up every day. So you know, if you live in Kazakhstan, that is going to be treated as a non us portal, even if the company itself is a Delaware Corporation. That’s the point.

Oscar Jofre  14:37

And

Marty Tate  14:39

Sorry, I was just gonna weigh in and to that point, you know, it’s in the person that marks referencing is the person who has control are the people who have control of the entity. You know, if you have I mean, I worked with the platform and they’ve got people all over the country, but those people aren’t making this They’re not the owners, they’re not the control people that that have that funding portal. So that’s all right. So it really comes down to that, where the control people are located.

Oscar Jofre  15:18

So the major shareholder, the company, the decision-maker, that’s ultimately as he said, I look out my window, and I see the Bahamas, that’s what I have to say I am a bohemian company. And in as long as there’s an information-sharing agreement between the US and becoming about the Bahamas,  I can register and so forth. That’s interesting. You know, I like that. I’ve heard that analogy from you before. And it’s one we need to do the only reason I bring it up because, you know, interesting, I am being invited to speak elsewhere in different countries now, because people are saying, well, there are people out there saying, Hey, listen, Jeff is doing really great. We can bring European companies in here and I go, We’ll put the brakes on a little bit, you know. And then, of course, as soon as you hear that people are saying, Wait a minute, why don’t I launch a platform and promo here what I could I can do that. And it does, why drew all of this, I think the general audience already knows, but it’s a good reminder to tell everybody this specific requirement. So one, who the majority owner is, so the major struggle with the decision-makers, and what country you reside in, as long as that country has information agreement with the US and the SEC, boom, we’re a thumbs up, you two are willing to take them on as clients and away we go. So besides those elements, obviously, can we walk through, Mark, just a few of the other regulatory items are going to need outside of let’s say they pass ownership level one, what’s the next item that they need? Because it’s, it is a process that you put clients through in us, right?

Mark Roderick  16:57

Yeah. The interesting thing or something that surprises many people that it’s a good surprise is that anybody can own a funding portal, there is no license required, you know, you don’t have to have any mineral licenses, you don’t have to have a series seven or a series anything else. Anyone can own the funding portal, and that that causes some of my fellow securities lawyers a lot of [uncertain]. They just think that’s awful. But it is true. Two steps, one, registering with the SEC, which is easy, and to apply for membership of FINRA, which is not easy, although that can be arduous. Eventually, you get approved. You know, if you answer the questions and submit the right pieces of paper, everyone gets approved, you know, absent, you know, you were just convicted of securities fraud or something like that. But you will be you will, you know I’m sure they asked Marty. Well, what are the chances that I’m going to get approved? And I tell them 100%. If we do the application the way we’re supposed to and we answer the questions. Oh, it Yeah, it’s open to everybody. I mean, that’s another thing about title three, generally, we talk about the democratization of capital, it makes capital available, it makes investments available to ordinary Americans. And the whole industry is open to anyone who wants to get involved. You don’t need a high school diploma to create a funding portal.

Oscar Jofre  19:02

Okay, so you may not need that. But there’s like everything else, just the same way companies need to prepare for going for due diligence and doing that the preparation for anybody coming in. So we now know anybody if you live in the US and all that, doesn’t even need a high school diploma, you can apply. So what are the requirements on that application that they need to provide? What is it that they need to come prepared with? They did the one thing that I think is the only way to make the industry more transparent? Is that to your comment, Mark, anybody can run it if I’m an investor listening to this thing. I don’t have warm and fuzzies. I get it that gets FINRA does go through I mean, I have a number of clients that they’re still waiting for FINRA approval. So clearly there is a lot of data that sec requires them. So let’s go through the first step at the SEC application. What is that entail? What is it asking beside the ownership that the company needs to have ready?

Marty Tate  20:00

So the SEC, as Mark said, the SEC application is easy. And it’s not a, it’s not a ton of information, it really just is the information about the who the funding who the entity is, who its principles are, you know, the owners and the executive officers, you have to make certain representations about, you know, basically go through a little bit of a background check, just by checking boxes, but it’s the process is really quite easy with the SEC. That being said, so that that’s, that’s like Mark said, that’s an easy process, the FINRA process takes longer. And again, there’s an application you file, but there are pieces to that application that you need to come prepared with, there’s, you know, in addition to all of your organizational documents, you need to have real documentation for everything having to do with the entity, you also have to one of the things FINRA really wants to look at is where the money’s coming from, they want to understand who is financed the funding portal. So if you have any loans, if you have any investors, you need to be prepared to provide bank statements and wire transfer documents for all of those transactions. And, you know, I just got done doing one application for a company and they had, you know, several [uncertain]. And that, you know, that was no less than a proctored exam for this because each one of those investors had to provide tons of information so that that’s, that’s part of it. And then there’s some, there are things that Mark can talk about, or one of us can talk about it, such as written supervisory procedures and there are pieces of the application that are standard that need to be formatted and customized for each of the issuers.

Mark Roderick  22:20

You know, one thing that neither Marty nor I have said because that’s just how our brains are working. But the most important thing that anyone who wants to become a funding portal needs is a website. So as soon as I mean it’s such a big elephant in the room we were not even noticing it but most of the extensive regulation around title three is manifested in the website so the website in title two or title four is easy here Here are the fields you want to invest course now and invest not so entitled three You know, there’s all kinds of functionality the website has to have when someone signs up, they have to get a notice and the notice has to say this and then when they invest they have to get 17 notices and each of them has to say this and all kinds of functionality so that I tell people that there are three legs to building a funding portal one is the website two is the legal stuff all the applications Marty and I are talking about and three is marketing you know to get deal flow and to get investors signed up but that first one you know Nothing happens without a website and some people I would say half my clients decide to build their own and a half licensed them from a provider you know crap engine is the let’s say the the market leader but in my experience about half two and a half down but one way or another you you need a website to become a funding portal.

Oscar Jofre  24:27

Well okay, let’s just be careful. You said website and then you’re putting crowd engine into the picture. Crowd engine is a funding technology but when you say website just we’re talking about having you know www I want to invest calm and having something in there or you’re referring to actually having the funding portal at the same time. I just want to get clarity on that. Thank you on mute again. Okay.

Marty Tate  25:00

Yeah, so I’ll take that. Yeah. So the website, again, the end by I think when Mark says having a website, it’s basically having the technology there the funder functionality, okay. Because it’s it’s not just a website, but that that, you know, the portal, which is the website, right is that’s I mean crowdfunding is done through the internet. So a reg regulation CF is done through the internet. So the FINRA is going to spend a lot of time looking through that and not only making sure it has the functionality, all the required functionalities, which again, are not required in these other types of offerings. But there has to be very, there’s a very specific set of requirements and disclosures and notices that have to be part of that technology suite. And that’s all on the website. There are on the portal, the website. Yeah,

Oscar Jofre  26:05

it just Sorry, just to be clear, there’s a big distinction between a website and a, so I get it a funding portal, which is the cosmetic of the what it does, and the application itself, which so the real meat is you. What I heard is the SEC application, just recapping it lightly. The SEC application is easy part, high-level stuff about the company who you are ownership boom, by this defend rather more detailed due diligence that they’re grilling into the company. You mentioned something really interesting, which is the money that came in to fund the company and the sources of capital and the wire transfer. So to not to say Marty invested 10,000 they want to know how he put the money in. And then you mentioned something else, you blurred a little bit where they’re actually doing a check on Marty, Marty needs to provide additional information. What kind of information does that investor need to provide? The are they doing a background check? ID, AML, OFAC? Is that what’s happening there? Sorry, I’m asking you, Marty.

Marty Tate  27:18

Yeah, so I think FINRA will do a background check that one to make sure they know who that person is. We’ve had the just the company I was talking about that had the, you know, dozens of investors. A lot of them were non-US citizens. They were so we had to do we actually they asked us to provide full like OFAC checks. So, a lot of that I don’t know how common that is. Maybe that was just because these were non-US citizens. They want to do that. So it’s FINRA’s job to understand who is not only running the portal but who’s invested in the portal and who’s participating in it. That’s, I think part of the

Oscar Jofre  28:14

plan. So from a company point of view, come prepared when you come in through guys like yourself to get ready because look what I think the what I’ve heard on the other side, I’m going to share with you guys what are your I wish lawyers would tell us what we need in advance. So the lawyers are doing it already for reg CF to do the form sees firms like Sarah they’re doing and they’re doing it for RegA, they’re giving the client that checklist, get them ready as we talked about it, but it here, I’m pulling at it. And I’m trying to figure out why. So now I understand they’re not going to pick on the both of you because you guys are doing a lot of them and there’s more going to coming. Because I think it’s going to hit people’s minds. Hey, wait a minute, this is good business. I could help others join 33 million Americans with lots of room for another player. But for any company coming in, it’s like everything else. First, do I qualify? Do I have everything ready? And then I’m making sure that they have all this so it doesn’t be late. You know, I heard from one client their exact comments to me we’re working with a lawyer and this process is like peeling an onion. Those are their exact term, peeling an onion every single time. I appealed it, and it made me cry because I knew I had to go back. But I would have liked it if that was the beginning. They gave me everything I needed that I needed to come back with so it can expedite because all the data delayed my ability to go forward onto the plane. I got it, but I didn’t know and so that’s where this

Mark Roderick  29:52

Let me say something about that. I and I bet Marty having been through this process so many times. I do my best to do exactly that. I lay out right, in the beginning, all the stuff, we’re going to need everything good addressing every possible issue. But it doesn’t work. Because FINRA unfailingly comes back with questions that they have never asked before and requirements that they have never imposed before. And questions that have not only couldn’t be anticipated, have absolutely nothing to do with the application, I have had the experience over and over and over on a lot of issues, but in with respect to the policies and procedures that FINRA requires. So what’s happening is these policies and procedures are becoming like barnacles on the bottom of a ship, layer after layer after layer after layer. FINRA never says, you know, we don’t need that. It’s always well, although the last four applications, we approved this format for this new application, we’re going to require three things more. And that happens over and over. I had one experience last autumn, where we had made yet more additions to the policies and procedures with the examiner got the finally got an approved fine, wonderful. Two days later representing another applicant. I got a letter. And having submitted those revised policies and procedures, I got a letter from an examiner saying, well, I need to deal with these three other things. And that would have been frustrating enough, but it was the same examiner. Exact same family, who had just approved, you know, this stack and writes back? Nope, that’s back not this week. That’s not enough. And I know that for my clients, that’s very frustrated. And they’re thinking mark, why didn’t you know you’ve done this so many times? Why didn’t you know, it’s just impossible, but FINRA is just It is a very, and I try to warn people upfront. It is a very, very, very difficult process dealing with FINRA, but it’s my parents.

Oscar Jofre  32:44

Well, actually, it’s, I think that’s a good thing for you to say, I don’t, you know, I have a different respect for regulators. Meaning that I get it, they go through the checks boxes, and they’re the SEC, I’m gonna give them full credit. They’re agile, they’re moving the needle there. And it’s frustrating, I get that. And but there’s a basic, let’s call it a basic package, you need to come ready with an after that, obviously, it’ll get more complicated. You know, when people start doing different types of models they haven’t seen before. And believe me, there have been some doozies that we haven’t seen before. So it’s exciting. But I think that I guess, you know, for anybody that sees it, guess it’s easy to apply, everybody gets approved. But as you just itemize, it’s a grueling experience that you have to go through to undertake. And there is a good chance you may not get it, I have met a company that didn’t get it. Well, that now that

Mark Roderick  33:39

there had to be a reason for that.

Oscar Jofre  33:41

Yeah, of course, you don’t

Mark Roderick  33:43

get you don’t just get denied. You know, they had to maybe have reached their point of frustration, they got tired of the pain. Right. I mean, Marty, I’m sure all of your clients get approved, eventually, if they answer all the questions, right.

Marty Tate  34:03

Yeah. Eventually, I think one of the issues I’ve had, you know, one of the issues where one of my clients, we went down the process, it was that issue with being a foreign control. We tried to argue that there was an information-sharing agreement because there kinda was, but it wasn’t one that was approved by the SEC. We tried some other things and then ultimately gave up so so that that type of thing happens. I had another person that just, frankly, they weren’t prepared. And it wasn’t that we hadn’t prepared them. They just, they didn’t have it and I had only I’ve only seen this once they didn’t have the financial wherewithal, like the SEC, FINRA just kept trying to dig further. Like, where are you getting this money? How is this money coming in? They couldn’t answer the questions. They got frustrated and I’m down with that. So that those things can happen. But I, I do want to read it reiterate what Mark said it’s, it’s every time it’s a different thing this just this last month, you know, I had one of my clients super frustrated and said, Why are they asking this? Why have you ever seen this? And my honest answer was no,

Oscar Jofre  35:15

I never saw the numbers that I think they’re gonna increase it, guys, if I’m the FINRA, we just upped the game. I mean, we’re upping the game to 5 million. I mean, it, you know, now they got to ask more. And I think they should I think if we’re gonna instill some level of confidence in the market, I think it’s good. And I think it’s important for anybody who’s looking at this, this is a serious business. And the fact that it can be easy, of course, but you need to be ready. I mean, the whole concept of being transparent everything, from the minute you brought in a penny to do every, it needs to be disclosed, tracked and, and everything in order for you to go through to make it simple, as Mark said, and both of you, but if you’re going to be tucking tailed, I mean, I do have a client like that, where I don’t want to disclose our shareholders. And I go, Well, good luck with that, because I don’t know how they’re gonna go through crowdfunding regulations because that’s going to become available to everyone. So it is rather interesting to hear this, and it’s good to hear it. So we talked about the money, the money seems to be a big one, which I, I do, I do agree with one part. Some people think something is easy. So all good, I’ll get in there. And I can be up and running in two, three months. But it could take six months to a year. And the company needs to be fine needs to be financially viable during that time, as well. Right? That is, along with all of this making the investment to the technology, because eventually, FINRA says okay, it’s time for you to show it to us. So that’s another financial commitment they need to make to a vendor, like a crowd engine or well blog that AI or whoever it is out there that’s providing these technologies, or if you build it yourself, you need to be able to demonstrate it to them as one of the requirements before they can give you the qualification. So what else beyond the functionality, the money, the ownership? I know we talked about policies and procedures, but what else beyond those elements should an individual or an entity getting ready to do this have ready in order to make sure that their process is smooth and easy? Marty?

Marty Tate  37:35

One thing that I would say today is just as you were talking, I was thinking about this is the people going through the process, I mean, the more that they in this, a lot of times does relate to capital and having a team, it’s built out having a game plan, knowing what they’re going to do, knowing how they’re going to go about Mark talked about the three-legged stool of the platform, the sort of legal application and the marketing. You know, having all those pieces in place is really important. But I think it’s it’s absolutely crucial that they understand how they understand the regulations, they understand how it works, I think, you know, sometimes clients will rely really heavily on the lawyers through the application process. And you know, one of the things that FINRA does is they’ll do you know, one or more interviews where they’ll go through that, that website through that platform, and they’ll make sure that it has all the functionalities. And they’re going to ask you specific questions. Again, it’s not on the spot, like you’re being tested that they’ll want to say, Okay, well, how does this comply with this rule? Show us where these notices are. And I think that people, it’s not just a Hey, we can throw something up and start making money that this is a highly regulated industry, and they have to know what they’re doing. They have to understand those rules, just as well as, or at least have somebody on their team that understands those rules in just as well as we do because I don’t think it makes a lot of economic sense for you know, for somebody to pay marker it to, or to be to babysit and, you know, continue to be revealing it, they need to know how to run it and have that that knowledge. Compliance piece in place.

Oscar Jofre  39:20

Yep. Thank you for that one. I was going to touch on that. But, Mark, I’d be interested to hear your comments on that.

Mark Roderick  39:28

I mean, Marty’s absolutely right. I mean, you have to have enough people, which doesn’t have to be a lot in the beginning. You have to have the systems in place. Which FINRA does ask about, you know, there’s a lot of different systems you need. besides the obvious one. The title three regulations require all records to be stored in worm format, you know, right. Once read many times, a lot of people are not aware of that. And so you have to find a word provider. Put that all in place. But what I do tell people what about when I give them the speech about the three-legged stool, which I always do in our first conversation, I say, certainly, if you’re, if you’re white labeling your software, your technology, your website, when I call the website, then you don’t have to worry about that. If you were using a reputable attorney, like if it were me, then stop thinking about legal stuff, because you don’t have to worry about that we’re gonna take care of it. It’s marketing, marketing, marketing, marketing, since 2013. Every time I talk about crowdfunding, I say crowdfunding is a marketing business. It’s not a technology business. And it is not a situation where you build it, and they will come. So how do you get high-quality companies to come list at your site? And how do you get investors to commit themselves to your site and start investing? I mean, that’s what I, I tell people, my first conversation that from now on, if the website takes care of and the legal taking care of, they better spend 95% of their time, on safety, about marketing, because no one there’s no one out there that they can pay to do it for them. And so that’s, that’s what companies that is ultimately what determines the success of a crowdfunding portal, just like some of the other businesses? Agreed?

Oscar Jofre  41:53

I mean, there’s a question that I often get asked where I need to remind people, as much as we’re getting a lot in new platforms, which is great funding portals, I always go back to prior to this announcement of the increase, there was already 51 register platforms. But out of those 51, there were only eight that actually had any activity. And out of the eight, only four or five and 99% of the market. And what do they What do they all share in common? It’s marketing, marketing, marketing. I mean, we have one that you know, it uses, you know, celebrity status, to grain attention, you know, like start engine using Kevin O’Leary. It’s ironic a, a US platform using the Canadian. That was so and then there’s, you know, micro ventures, and WeFunder and Republic. Republic going the more the angel world. So I do agree with that. I would say that based on a lot of the platforms that I’ve seen, and the ones that aren’t there, I would say the number one issue is they’re not spending any marketing, and they have this philosophy that companies are always looking for money, and they will find me, it’s a really wrong approach because it’s not. That’s not the way it works. But that’s number one. But number two, I wonder how you all feel about this. I’ve been using the terminology at Heinz 57. I think you’ve heard me say before Marty, but I’m, I got a better analogy for it. It’s sort of like a supermarket. So I go to a supermarket. So you know, I go to when I call that loblaws I go into loblaws. And, you know, I go in and lettuces, they’re right beside of this my cereal, everything is nothing is in areas stacked up. I don’t know where I’m going and it’s moving around. And then you have a shopping mall called Republic. And everything looks the same. The only thing I need to do is choose which one I like. So what am I getting? A lot of the new portals have gotten through and all that and now they’re there. They want to appease everyone, and which is I want to offer debt, I want to offer equity, I went out for the Save and I call that the Heinz 57. Meaning you want to be like this because you go look at those guys. They only do one or two and that’s it. They need to provide choices. What do you guys feel about the How do you feel about making it one, one, or two kinds of securities you offer versus many I have my reasons for but I’d love to hear your comments on that first, Mark. Well, he’s on silent again.

Mark Roderick  44:53

Now here I am. I just have a lot of noise in the background. I don’t want to bounce

Oscar Jofre  44:57

okay, but

Mark Roderick  44:59

I think It’s a great question. I believe that the Well, I guess, I guess one thing I want to say, which is relevant to this question, but overall is, I hope that people starting funding portals today do not simply copy what some of the other in particular in the large funding portals have done. It’s a different market. Now, at least it will be when the rules change, a lot of what the existing portals have done is not very good. It’s not good practice, it’s cutting corners. And they’ve done it because you couldn’t make money as a funding portal up to now. Because the deal size was just too small, the dollars were trickling in, you couldn’t make money. So they’ve had to use all these tricks and, and shortcuts and rounding corners and kind of deception. And so I hope people listening to this presentation who are starting portals today will rethink the model. It is about to become a very, very profitable space. But now responding to your question, I do think Oscar that, you know, the crowdfunding market, it’s not just the old fashioned private placement market, getting bigger it as the industry scales, it, you have to rethink it, it is a mass market, it has to be a mass market. It is I mean for to be successful. And in the mass market, you are correct, that you don’t get 27 different kinds of securities, everything has to be standard on the documents have to be standardized, the company format has to be standardized, the types of securities have to be standardized. You know, the disclosures have to be standardized. So the whole industry has to move in the direction of making it easier for investors to pick and choose. No, they have to be able to have to be apples to apples to apples to apples that can’t be 17 different kinds of fruit on the same funding portal. So I would you know exactly what the answer is. I’m not sure, of course. But I agree with you that, that it has to be narrowed.

Oscar Jofre  47:49

Marty, would your thoughts?

Marty Tate  47:53

Yeah, I think so as well. I do like that there are some and maybe it just has to do with the platforms themselves. But there are some platforms that have like specialized models, like revenue sharing agreements.

Oscar Jofre  48:11

And yeah, that’s different.

Marty Tate  48:14

That I think, you know, makes sense. But yeah, going to like, if I have a client that wants to be a platform and they’ve said that they’re like, “we want to do debt deals, we want to do save, so we want to do equity.” I said the same advice. I said, Well, let’s try to focus on one thing that works. Now, that being said, I represented an issuer a couple of years back, and they were doing an offering on WeFunder and WeFunder was like No, you’ve got to use a safe, and I didn’t want to be as a safe, they didn’t want to use a safe, they just wanted to go out with just you know, with just straight equity. And, you know, but that we understand we do safes. So I don’t know.

Oscar Jofre  49:04

Yeah, I mean, the advantage, you know, the thing about all of this is that our conversations are going to get very, very interesting. from different perspectives, because the more data we have, we can now share, and that data guides us. So here is things that we can share that we can tell you so we house you know hundreds and 1000s of investors both in RegA and reg CF. And there, we, we understand the challenges that people have. To give you an example, when a reg CF investor goes to a RegA deal. They only invest but after they’re done, they’re majorly confused. They’re confused because they got a share. They didn’t get a ship but you know, the safe instrument now they need to know what a share is. And then we’ve had companies that They’ve added another quirk to it, they’ve added a warrant. And they don’t even have a clue what the warrant means, let alone that they’ve got a price on it, which is higher. So it’s confusing. The reason I bring all this up is that I tell Jim, here, that is, one funding portal that we’re talking to right now is going to offer for a number of selections. And he said You know what, that’s great. You know, I understand it, because no two companies are alike. I said I get it. 100%. But here’s my, here’s my john, how are you going to support it? And he goes, What do you mean, I, it’s just legal instruments know, how are you going to be able to support this in the market? Oh, it’s okay, I brought in an expert in each area. So they’re putting in all the dollars and cents into experts to be able to help the issuers and all that set up a deal. And then I’m going to come back to what Mark said, Mark said, item number three, or number Yeah, number three, get your stuff in order for FINRA make sure you got your legal your functionality and all that your policies and procedures and most importantly, marketing, marketing, marketing marketing. So if now all sudden, you’re putting all this effort into adding bodies into your team to explain it for one investor, because, see, the, it’s not about copying, Republic or refund or starting journey, it’s not about copying them is to understand how the crowd is reacting. So if all of you don’t recall, when Republic first came out, a lot of people said the crowd sale would fail. Because they call it you know, the for them, they renamed it safe to call it a crowd sale. And they trademarked it right. So it would fail. And at the beginning, it wasn’t getting the traction that it wasn’t, but look at them now. Or in a few years, they become number two in the space, they’ve trained a crowd to look at an opportunity. So and it’s interesting as they bring other products like real estate and all that they’re placing them differently. And but they’re careful to make sure and everybody needs to be careful with this. Because we have a very young investor base. And I don’t mean by age, I mean young from the perspective that they This is the first time it’s been offered to them. There’s a lot of questions they have. So the the the experienced investor, the accredited, even they have questions, what’s the difference between a promissory note a, you know, a debenture, and all that. So I’m, I’m a big believer that Heinz 57 does not work in a reg CF platform at the beginning. And I say this at the beginning. Because you’re right, Marty, at one point, we found our users to say no, we founders now saying yes to shares, but they’re maturing, do you see what I mean? At one time, they will tell you they wouldn’t do that. But now they are Why? Because they have enough of a base. They have enough support staff for marketing, and to have a team to educate people on what a share is, how does it work? What are your rights? What are you going to do with it? Right? They didn’t have that before, you have to think of all those things. So if you need to market your platform at the beginning, and you need to focus on bringing eyeballs because they’re not going to just come to you. A lot of them are spending so much time in the back office. Mark, you wouldn’t believe it. Oh, yeah, gotta have the technology. Just go to crowd engine and go, you’re done in 510 minutes. Okay. So that’s that. The fear is you got to get out. You got to get out there and start marketing. And so this has been to me, that was the one piece I wanted to throw in there. Because I ran into a few portals where I like the revenue share, I, we share that client in common. Marty, you and I like it. I think it’s simple. It’s easy. I mean, the difference between one or the other will be a percentage. I mean, that’s an easy model. That’s, I think that’s innovative. We haven’t I remember in early 2012, somebody said they were going to do it, they never did. But now with $5 million, it makes a lot of sense. And platforms are going to make money. I mean, something’s got to be said about, you know, eventually, the crowdfunding sector will pop up a unicorn, and whoever the funding Portal was as most funding, if you guys have seen most funding portals, they participate in the race, they take a piece of the equity along with everybody else to you know, every part of their fees and not just taken up. So it’s a very interesting market. So I just want to get some closing marks from each of you because it Mark I mean, advice you said you prepare them with you to the companies. And there’s something on your website that you have that can help companies get that generality and then boom, they can contact you and then get started. love to get your closing remarks on that.

Mark Roderick  55:10

I, you cut out a little bit. But I’m happy to make closing remarks. Now my closing remarks

Oscar Jofre  55:23

State of the Union, my friend of the Union.

Mark Roderick  55:28

I got I think the best closing remarks that I can give, I believe, for this topic are to echo something that I said earlier. So up until now in human history, the way companies raised money was under Rule 506, gigantic, gigantic market, usually accredited investors own but sometimes non-accredited investors. And that was by far the hugest market with the advent of the new rules, and by the way, I’m not so sure they’re coming into effect on March 15. But that’s a different discussion. With the advent of the new rules, title three is, you know, having been a really bad neighborhood for the past five years, is going to become the best neighborhood, it is going to become the focus of private capital formation in this country, and just a multi-billion dollar market. That’s what I am, I think I’m, you know, I’ve been doing this for the whole history of the country. So that’s, that’s my perspective. It is, it is going to be wonderful, fabulous. Lots and lots of opportunities in this space. So that’s my closing remarks.

Oscar Jofre  56:57

Thank you. Thank you, Marty.

Marty Tate  57:01

Yeah, I’d agree with Mark, I think that the increase will definitely, I just think you’re gonna see bigger, better deals, this will become more standard. I work with a kind of consulting group, broker-dealer, that’s their new model. I mean, they’ve really, they’ve come to me and said, Hey, we’re gonna do, we’re gonna have all of our companies go through this, this is how we’re going to raise money is through. Interesting, you know, reg CF. So I think that’s I, I’m, I’m excited about it. And we’ll, we’ll kind of see what happens.

Oscar Jofre  57:42

Well, it is rather interesting. You mentioned that we didn’t get into that, that. That’s another discussion itself, is that you, you said, we said that it can be wrong to be at a register funding portal, but there’s a new entrant into the game. And the broker-dealers have now woken up, we’ve now woken up. They’re the gatekeepers, as people used to call them. And they’re embracing it. They’re now saying, Wait a minute, you know, a million dollars. Okay. No, but the 125 million marks, you said it, you can make money on it. And it touches into their to the market. So, listen, it’s always a great discussion. I know, it’s hard to kind of go through that. Because you guys are dealing with it day in and day out. My, our focus on quirkiness has always been about education, trying to help the market evolve. I believe there’s a lot of good ideas of people that want to do it. Sometimes they’re so they’re not quite sure. And just want to be able to guide them in that direction. Marty, Mark, you guys are right there. You’ve done it before. So and we’re always excited about the fact that people have that door. So I want to thank you both for joining us today. For everyone else. Thank you so much for joining us this afternoon, just a couple of blurbs on March the 15th that during that whole week, Monday to Friday, we are going to have Well, we’re anticipating that it’s going live so, therefore, that day starting off with we call it the jobs, estate of the JOBS Act 2021. We’re introducing the father of the JOBS Act, David wheel with Vincent Molinari, host, to have a discussion of where it was where it’s going to and it’s going to be an amazing year. 2021 Thank you both. I can’t wait to talk to you guys again soon. Have a great afternoon. Talk to you soon.

Join the all-in-one platform empowering private capital markets.

Free forever, KoreConX makes it easy for participants in private capital markets to manage their investment portfolios, raise capital, and meet global compliance standards along every step of the way.

Book a demo
Join the all-in-one platform empowering private capital markets.
Free forever, KoreConX makes it easy for participants in private capital markets to manage their investment portfolios, raise capital, and meet global compliance standards along every step of the way.


Sign up, it’s free!   Book a demo